search the site

The Brokerage Firm Hierarchy

Comments Off on The Brokerage Firm Hierarchy

Posted by Rick Strauss on Mar 5, 2019 in Investment Protection | Comments Off on The Brokerage Firm Hierarchy

I am new to the world of investing. When I first stepped into the office of a brokerage firm, I didn’t understand why the office space was so large. There were tons of interns, personal financial advisors and then a liaison of corporate managers above them. I decided to do some research on how a large brokerage firm worked on the inside, and I found some really helpful information on the Erez Law website. The attorneys at this firm are currently attorneys who represent investors against brokers who invested in the LJM fund.

Apparently, the managers and corporate teams at an investment fund have a responsibility to set guidelines for personal financial advisors. They also have a duty to monitor the activity of these investors. Sometimes, bad apples can find their way into a firm. These bad apples partake in unethical investment strategies that put clients at more risk than they want. They can also use the money of their clients in order to help themselves make gains. These individuals can be held accountable in law, but the firm can also be sued if the company is not taking steps to adequately monitor and weed out these unethical practices.

When you hold a corporate position at a brokerage firm, part of your job is to create certain rules and guidelines based on average customers. These serve as templates for certain archetypes. For example, let’s say a person has $100,000 to invest. They are 35 years old and want this fund to sit and make money until they retire at 65. This is a situation that financial advisors see all the time. It’s a fairly standard customer that is looking for safe returns. The corporate officers anticipate these types of customers and give financial advisors recommendations on current mutual funds, index funds, and stocks where they can park their money for the long term.

When the LJM Preservation & Growth fund was around, this fund put investors at a huge risk. The fund bet on future stability within the S&P. This is a complex and risky investment practice. It left investors with a huge potential for loss. No corporate officer in a brokerage firm would allow financial advisors to invest in this sort of fund. However, some financial advisors did invest in this fund. The advisors were able to do so because they were not being properly supervised by corporate. This lack of supervision caused some customers to lose thousands, sometimes millions of dollars in assets in just two days.

We can see how accountability is shared among employees within a brokerage firm. Financial advisors that invested in the LJM fund broke their fiduciary duty by investing in unsafe funds. They were negligent with their customers money. Corporate also violated a certain level of fiduciary duty by not having accountability mechanisms in place to spot these unsafe investment practices. Thankfully, there are lawyers, like the lawyers at Erez Law, that work to make sure these brokerage firms are held accountable at every level so that investors can recover capital lost due to negligence.